Eye Crosser #12: Who Prints the Money? U.S. Treasury or The Fed?

Who really prints the U.S. currency: The Federal Reserve Bank (the Fed) or the U.S. Treasury? I have seen and heard writers, journalists, and others, say that the Fed prints U.S. currency. For me, this is a bit like the difference between the Federal debt vs. the Federal deficit of which I have blogged about in an earlier posting. I think I finally understand the difference but “wait a minute”, let’s look at this again???

So here are three articles concerning the relationship between the Federal Reserve Bank and the United States Treasury Department.

Courtesy of the Federal Reserve Bank of New York:  How Currency Gets into Circulation

  • Paper currency is printed by the Bureau of Engraving and Printing (a division of the Treasury Department)
  • Coins are minted by the United States Mint (a division of the Treasury Department)

Here’s a nice article written by Aaron Task in Yahoo! Finance:  No, the Fed Does NOT ‘Print Money’: Just Explain It

  • The Fed controls the money supply.
  • The Fed lends money to the banks.
  • The Fed sets the fed (federal) funds rate.

John Carney of The Atlantic puts forward an interesting argument that The U.S. Government Cannot Ever Run Out of Money! Here are three points from his article:

  • The United States enjoys unlimited overdraft protection from the Federal Reserve Bank.
  • Rejecting a check written by the government of the United States would probably violate the dual mandate of the Fed to pursue maximum employment and price stability.
  • Would having the Fed credit the account of a bank that presented a check on the U.S. Treasury Department’s empty account amount to the incurrence of new debt in violation of the debt ceiling?

So it appears that the U.S. Treasury Department prints the currency but the Federal Reserve Bank controls the flow of the money.

Eye Crosser #9: The U.S. Debt Limit

As promised in an earlier posting, here’s the lowdown on the U.S. Federal debt limit. I found an nice article posted on the U.S. News & World Report website:  A Debt Ceiling History Lesson.

It seems that several Presidents have grappled with the Congress over raising the “debt ceiling.” What is interesting is how the elected officials go about justifying or not justifying the raising of the U.S. debt ceiling. If we default on paying our bills, it means that the U.S. defaults on its debt. Defaulting, of course, means that one reneges on paying his/her debt on time as promised.

Here’s the definition of debt limit according to the U.S. Department of the Treasury:

The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.

Bloomberg QuickTake in its article The Debt Ceiling  dated March 15, 2015,  gives the following conclusion:

 The Argument

At least one thing is clear about the debt ceiling: It hasn’t restrained the federal debt. That’s in the hands of Congress when it sets levels of taxation and spending, then borrows money when it overspends. Raising the debt ceiling simply lets the government pay for things it has already decided to buy. As a result, some budget experts and commentators want to abolish it, arguing that the uncertainty of Congressional battles costs taxpayers money by increasing economic uncertainty, among other problems. Debt-limit supporters say opponents overstate the potential harm and that using it to bargain for spending cuts serves the public interest at a time of historically high debt levels.

Just a refresher, recall from my posting Eye crosser #6: Debt vs. Deficit posting:

Deficit= difference between what the Federal Government “takes in” and what the Federal Government “pays out.” If you spend more than you earn or in the instance of the U.S. Government, what you collect in taxes, then you have a deficit.

Debt= according to the Treasury site, “One way to think about the debt is as accumulated deficits.” The United States consistently borrows (issues Treasury investment instrument)  more money than it pays back to the loaner. The United States is limited in how much money it can borrow by the Debt Limit. Our Federal debt limit is controlled and determined by the Congress of the United States. In the last few years we have certainly heard a lot about “raising” the debt limit.

Author’s Addendum 9/13/2015: Here’s a nice explanation of U.S. national debt ceiling written by Mark Koba at CNBC: Debt Ceiling: CNBC Explains. Although it was written on October 8, 2013, the information is still valuable.  In fact, the U.S. Congress and the President are jousting again in September, 2015, with another shutdown of the U.S. government looming.

Author’s Addendum 9/13/2015: Another CNBC article, this time it’s National Debt: CNBC Explains. Again Mark Koba does a nice job of explaining “debt” vs. “deficit”. Article is dated 6/29/2011 but still relevant.